Inconsistency and Opportunity in Public Plans

Life is fraught with inconsistency, and a new study by Lincoln Financial Group (LFG) shows that extends to providing services to governmental retirement plans. But the study also suggests the antidote to those inconsistencies and to participation and deferral rates that are not as high as plan sponsors and employers may want.

Dan Gangemi, Head of Research and Insight Retirement Plan Services and Group Protection for LFG, elaborated on the study at the LFG Mid Atlantic Public Forum held in Washington, D.C. on Dec. 6. He exhorted attendees to show interest in plan sponsors as individuals as a way to improve service to clients as well as retirement outcomes for plan participants.

In the study, conducted from April to September 2016, LFG spoke to and surveyed government plan sponsors that serve cities, towns, counties, special tax districts, institutions of higher learning, hospitals, and federal and state plans.

The study suggests that many plans are well-intentioned. Just over 60% have a primary objective that is oriented toward the employee — 53% say helping employees to save for retirement is their top goal, and 8% cite to promote employee satisfaction. The other 39% are more employer-oriented, citing attracting and retaining employees as their top goal. A majority of plan sponsors considered themselves successful in meeting each of these three goals.

And what has the biggest impact on their ability to meet their key objectives? Their responses were:

• communication with employees: 50%

• plan design: 36%

• investments and administration: 14%

But that doesn’t translate to how they spend their time, Gangemi said. LFG found that consultants and advisors spent time on those areas in inverse proportion to the impact they say they have. They spent their time on those areas in the following proportions:

• communication with employees: 10%

• plan design: 15%

• investments and administration: 75%

Gangemi pointed out the stark disparity between the importance plan sponsors assigned to communicating with employees and the amount of time they spent on it. “The area with the biggest impact was the one on which the least time was spent,” he observed.
But while the plan sponsors may not spend as much time on communication as their interest in it may suggest that they would, they also told LFG that they themselves want good communication from consultants and advisors — for themselves as well as for the employees they ultimately serve. To wit:

• communication and service to plan sponsors from consultants and advisors was the greatest source of plan sponsors’ dissatisfaction — 93% were so; and

• more than 90% want consultants and advisors to communicate well with employees.

And communication is not the only area ripe for change, LFG found. Plan sponsors were nearly as unhappy with participation and deferral rates as they were with communication. Dissatisfaction with the ability to increase participation and deferral rates was nearly universal, at 91% and 90%, respectively. Those rates were as follows:

Participation Rates
Cities: 56%
Towns: 40%
Counties: 38%
Special Tax Districts: 43%
Institutions of Higher Learning/Hospitals: 50%
Federal and State Governments: 42%

Deferral Rates
Cities: 4%
Towns: 2%
Counties: 2%
Special Tax Districts: 3%
Institutions of Higher Learning/Hospitals: 4%
Federal and State Governments: 4%

Plan sponsors’ dissatisfaction is more than a passing fit of pique — it has the potential to affect bottom lines, LFG found. The strong unhappiness they evince about communication and the ability to increase participation and deferral rates can make them deal breakers — they are leading factors in compelling a plan sponsor to consider making an arrangement with a new consultant or advisor.

Not only that, the danger may be imminent, at least among the plans LFG studied. Seventy percent said that they are at least somewhat likely to meet with new consultants and/or advisors.

But LFG doesn’t just sound an alarm bell for those who serve plan sponsors — it also offers the hope of opportunity for them, identifying the factors that drive plan sponsors’ decisions regarding what new consultant or advisor to hire. More than 90% said they are looking for service providers that work hard to understand plan-related needs and that plan to address those needs and employees’ needs. “Get to know the plan sponsor,” said Gangemi.

Opportunity Knocks

To Gangemi, the results writ large are a glass half full. “I look at this as an unprecedented opportunity,” he said, adding that it is a “huge opportunity to make a difference with existing plans and potential clients.” Service providers can “turn areas of the most dissatisfaction into satisfaction drivers,” he said.

Gangemi looks on this as a chance to offer what he calls “wow” service — which entails, he says, “sitting down with a client and speaking to them like a human being.” He argues that “we have to talk and learn the specifics of each plan sponsor” and to “remember that each plan and situation is unique.”

Gangemi suggests that consultants and advisors “define and redefine” their value propositions to emphasize:

• people;

• relationships;

• trust;

• loyalty; and

• commitment.

Time, specificity and results resonate, Gangemi told attendees, adding, “This stuff boils down to common sense.”